Activist Investors Are on the March in Europe

It looks like no European company is safe from shareholder activists anymore.

Pernod Ricard
(RI.FR) became the latest target on Wednesday after U.S. hedge fund Elliott Management said it had built a near-$1 billion stake in the French drinks group and urged it to boost margins and improve its corporate governance.

Just days earlier, Amber Capital took a position in
Suez
(SEV.FR), the troubled French water and waste group, and said it wanted management to boost shareholder returns and sell some assets.

Until recently, the concentrated ownership structure of European companies—in which founding families often held a controlling stake—would have proved too big an obstacle for activist investors to overcome. The Ricard family, for instance, is the company’s largest shareholder with a 15.9% stake and around 25% of voting rights. Chief executive Alexandre is the grandson of the company’s founder, Paul.

But, traditional, long-only shareholders under pressure to deliver higher returns have become increasingly vocal in pushing for strategic change and creating value in the companies they are invested in.

“As the shareholder base in Europe changes, a more shareholder-centric model is challenging the status quo and is creating an environment more supportive of activism,” said Richard Thomas, head of European shareholder advisory at Lazard.

The shift in power is playing out in the numbers. Shareholder activism in European companies reached record levels in 2017 and that trend has persisted. In the first nine months of 2018, there were 40 activist campaigns against European companies with a market capitalization of more than $500 million, compared with 42 campaigns for the same period a year earlier, according to Lazard.

Editor's Choice

Amber Capital says it has run more than 30 public and nonpublic campaigns in Southern Europe since 2005. Elliott, one of the world’s biggest activist investors with around $35 billion in assets under management, has launched a number of campaigns in Europe in recent months. It is currently engaged in a bitter battle with French media group
Vivendi
(VIV.FR) over control of
Telecom Italia
and in early December it emerged that it had a position in
Bayer
(BAYN.XE), raising speculation that it will push for a breakup of the German chemicals and pharmaceutical group.

Demergers have been one of the most common objectives of activist campaigns on the Continent in the past 18 months as funds reassess whether they are receiving adequate returns for the level of risk and capital they have invested.

“In Europe, the stakeholder model is being challenged and the burden of proof has changed. Shareholders want to see a simplified investment thesis and that the company has earned the right to be a conglomerate,” said Dennis K. Berman, a managing director in shareholder advisory, with Lazard.

One of the highest-profile examples this year was the breakup campaign Elliott and Swedish fund Cevian waged against
ThyssenKrupp.
In September, the German conglomerate finally agreed to separate its marine and industrial solutions divisions into two independently traded businesses after a particularly prolonged and bitter campaign which culminated in the resignation of both its chairman and chief executive.

Some European governments have introduced protectionist tools to defend their national assets from activists investors. France, for instance, adopted the “Florange” law in 2016 to reward long-term investing by automatically giving shareholders double voting rights if they have held shares for more than two years.

But the legislation was criticized by both managers and investors for preserving the interests of dominant shareholders, which was often the State, and weakening corporate governance.

“Activists are not dissuaded by protections like double voting rights, because they believe that pressure through the media and voices of other shareholders can be as powerful a force as the vote itself,” Thomas said.

Arturo Albano, corporate governance specialist at Amber Capital, said most activists would rather drive change from inside a company.

Elliott, which made a point of meeting with Alexandre Ricard in Paris in November and followed that up with a letter to the board outlining its concerns, says it wants to collaborate with the drinks group to make improvements.

“The management and board of directors of European companies have become more open to initiatives proposed by activist investors because they see it is better to make some concessions and implement some proposals rather than go through a proxy campaign at a shareholder meeting where they may be defeated,” Albano said.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.